U.S. 10-year Treasury yield hits highest in 16 years
UK interest rates frozen, Sweden raised by 0.25%p
Japan’s monetary easing continues – China’s interest rate cut trend
Bloomberg: “Dollar turns into a beast again”
As the U.S. Federal Reserve (Fed) showed the so-called ‘higher for longer’ policy stance, leaving open the possibility of further interest rate hikes within the year, central banks in major countries around the world are also joining in the prolonged austerity policy. The global financial market was engulfed in anxiety, with government bond yields and the value of the dollar soaring and stock markets falling, signaling that the first austerity cycle in over 40 years would last longer than expected.
On the 20th (local time), the U.S. Federal Reserve left open the possibility of an additional hike this year, and then raised its forecast for next year’s final interest rate by 0.5 percentage points, suggesting that interest rates will remain high in the 5% range next year as well. Federal Reserve Chairman Jerome Powell said, “The neutral interest rate (the equilibrium point of interest rates that do not overheat the economy) may have risen,” signaling the fixation of high interest rates.
The next day, on the 21st, the Bank of England froze the base interest rate at 5.25%, but announced that it would “maintain high interest rates for a sufficiently long period of time,” formalizing its prolonged austerity measures. On this day, the central banks of Sweden and Norway raised the rate by 0.25 percentage points, and the Swiss central bank predicted a further interest rate increase despite the inflation rate remaining at a low level of 1.6%. Earlier on the 14th, European Bank (ECB) President Christine Lagarde did not rule out further interest rate hikes, saying, “We cannot say we have reached the peak,” after raising interest rates by 0.25 percentage points. Turkmenistan and Taiwan are also predicting prolonged austerity.
The reason why central banks around the world are in solidarity with the prolonged austerity is because uncertainty, including rising oil prices, is increasing in the final stages of the ‘war against inflation’. In addition, as economies around the world, including the United States, are enduring a high interest rate situation, central banks are under less pressure to cut interest rates.
The market, which was expecting an interest rate cut in the first half of next year (January to June), appears to be shaken by the central bank’s formalization of prolonged austerity. Goldman Sachs has revised the Fed’s interest rate cut timing from the second quarter (April to June) of next year to the fourth quarter (October to December).
Accordingly, on this day, the interest rate on 10-year U.S. Treasury bonds exceeded 4.5% during the day, breaking the highest level since 2007 before the financial crisis. The US Nasdaq index, centered on interest rate-sensitive technology stocks, fell for two consecutive days on the 20th (-1.5%) and the 21st (-1.8%), and anxiety spread that the semiconductor market, which had dreamed of revival through artificial intelligence (AI), would have a longer winter. It is becoming. The stock price of Nvidia, a leading AI chip company, fell 2.89% on the 21st, and over the past 5 days it has plummeted 9.5%.
The fact that Japan and China are on opposite sides of ‘prolonged austerity’ is also considered a market variable. On this day, the Bank of Japan decided to continue large-scale financial easing policies, including freezing short-term interest rates at -0.1% despite the record low yen phenomenon. Due to the low yen, the dollar index, which shows the value of the dollar against major countries’ currencies, has exceeded 105, the highest level in six months.
Due to the economic slowdown amid the real estate default crisis, China is also trying to ‘release money’ by lowering the Loan Prime Rate (LPR), which is the de facto standard interest rate, in June and August. The value of the yuan has recently fallen to a record level, so the LPR was frozen in September, but further cuts cannot be ruled out.
As the interest rate gap between the United States, China, and Japan widens, the market predicts that market funds will move to the United States and the value of the dollar will continue to strengthen. Bloomberg News said, “The dollar is turning into a beast again,” and “The Chinese and Japanese authorities are trying to intervene in the exchange rate, and developing countries are facing a painful 2022, when the rising value of the dollar has caused an economic shock by raising the price of raw materials and increasing the burden of foreign debt.” “I’m recalling memories,” he analyzed.
Meanwhile, KOSPI closed trading at 2,508.13, down 0.27% (6.84 points) from the previous day. It fell below the 2,500 mark at one point in early trading due to concerns about the prolongation of U.S. tightening, but the decline gradually narrowed thereafter. The KOSDAQ index also closed at 857.35, down 0.39% (3.33 points) from the previous day. The won-dollar exchange rate was 1336.80, down 2.90 won (0.22%) from the previous day.
Short-term and long-term interest rates on government bonds, which had hit an all-time high the day before, fell all at once. The interest rate on 3-year Treasury bonds fell 0.054 percentage points from the previous day to 3.876% per year, and the interest rate on 10-year bonds also fell 0.030 percentage points to 4.001%. The previous day, the 3-year Treasury bond interest rate was 3.930% and the 10-year Treasury bond interest rate was 4.031%. This was the highest level since November 10 last year.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.